With Eric Tolitz, a serial entrepreneur and growth trader.
You’ve probably heard this mantra before: “Money doesn’t solve all your problems.”
In the case of startups, it’s true most of the time. Unfortunately, we live in a society that praises the ability to attract investment, often with complete disregard for the underlying business. Although acquiring capital is no easy feat, it should never be seen as the end, but rather as a means to an end.
The Entrepreneur’s Perspective
Despite the fact that fundraising is usually presented exclusively as a beneficial endeavor, in reality, this is not the case. Before we take a look at the various steps involved in backing a startup, let’s first identify the pros and cons of raising capital as a founder.
• Strengthens the credibility of your company.
• Offers increased financial resources to cover expenses.
• Provides access to deep networks and industry connections.
• Will be subject to ownership dilution.
• You may have reduced control over your operations.
• You could have added pressure to meet targets and deadlines.
Without a thorough analysis of the many implications associated with attracting investors, you could end up regretting it in the long run. To avoid this, it is vital that you as an entrepreneur are aware of the sacrifices you make in exchange for money.
What is required to secure funding
Now that you understand how raising capital is often important in growing a company, we can take a look at what is necessary to obtain financial resources. Whether you’re seeking funding from angel investors or venture capitalists, having a strategy to successfully navigate the process is essential.
Here are some key steps to follow as you work to raise startup capital.
1. Develop a business plan.
Before you start fundraising, it’s important to have a clear idea of what your company does, what it needs capital for, and how it will generate revenue. This means you should create a detailed plan that outlines your goals, target market, competitive landscape and financial projections.
2. Determine what you need.
To raise capital, you need to fully understand how much funding is necessary to achieve your business goals. Be sure to factor in all the costs associated with starting and growing your startup, including salaries, rent, and marketing, as well as any other expenses you’re likely to incur.
3. Identify potential investors.
As a first-time founder, it is imperative to note that not all investors are potential candidates for your company. In fact, many angels and VCs have preferences when it comes to the industries in which they entertain opportunities. So when deciding who to promote, always do your homework.
4. Network and make connections.
Building relationships with industry professionals is a key part of the fundraising process. Some of the ways to connect with the right people include attending events, joining relevant organizations and using social media. This way, you can increase the chances of landing an investment.
5. Practice your pitch.
When approaching investors, it is of the utmost importance to convey information in a clear, concise and compelling manner. As you develop your proposal, consider seeking guidance from a mentor, as these individuals can help demystify various aspects of your business.
6. Prepare for due diligence.
If you attract interest, the investor on hand will usually conduct a more thorough evaluation of your company to ensure that it is indeed a viable investment. Be prepared to provide any documentation they ask for, including records such as licenses, trademarks, patents, contracts, and more.
7. Negotiate the terms.
Once you’ve secured an offer, it’s time to review the terms of the agreement. At this stage, entrepreneurs usually hire a lawyer for advice on the best path forward. It is often beneficial to have multiple term sheets as it incites competition and allows greater leverage in negotiations.
In conclusion, raising capital for a startup can be a challenging and time-consuming process. However, by following the steps above and being well prepared, you can increase your chance of success in getting the financing you need.